02-8

02-8

March 14, 2002

Re: ________ – Financial Code Sections 3862 & 3871

Dear Ms. ________:

This follows your letter dated February 11, 2002, and our conversation on February 22, 2002. As we discussed, ________ (“________”) must file an application for a facility office license if it wishes to continue to operate the facility office in California formerly operated by ________ (“________”).

For present purposes, the facts may be summarized as follows: ________ is a Florida state-licensed trust company that merged with ________, which was also a Florida state-licensed trust company, on January 16, 2002. ________ is the surviving company; ________ no longer exists as a corporate entity. Prior to the merger, ________ operated a facility office in California pursuant to a license issued to it under Financial Code sections 3860, et seq. (“Article 4”), which govern the establishment and maintenance of a facility office by a foreign (other state) trust company. ________ would like to establish a facility office in California at the same location where previously operated a facility. ________ has inquired whether it will need to file a new application pursuant to Article 4, or whether , as the surviving company, succeeds by operation of law to the right to operate that same facility under ________’s facility office license.

As you noted in your letter, Article 4 expressly provides that “[n]o license is transferable or assignable.” Financial Code section 3871. The Department has interpreted this provision, and similar provisions,n1 to mean that a license issued to an entity cannot be transferred or assigned to another entity by any means whatsoever, including without limitation a transfer by operation of law. In the context of a merger governed by the law of a foreign state, this provision is intended to preserve the authority of the Department to independently assess the ability an out of state financial institution to conduct business in California in a safe and sound manner. To adopt the position you advance – that transfers that occur by operation of law in the context of a merger are not “transfers” within the meaning of Financial Code section 3871 – would mean that the Department would waive this authority whenever there was a merger between out of state financial institutions. We decline to adopt such an interpretation.

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n1The Financial Code contains many provisions that explicitly prohibit the transfer or assignment of licenses issued by the Department, particularly where the licensee may not necessarily be a California corporation. See, e.g., Financial Code sections 1711, 1802.6, 1862 & 33407.

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While we generally agree with the argument that Florida law governs the merger of ________ and ________ , it is clear that California law governs the separate issue of whether an out of state trust company is authorized to conduct business in this state at a facility office. Thus, although it may be true that ________ has succeeded to the property rights of ________ under Florida law,n2 that does not mean that Florida law dictates that ________ may now operate in California. As you noted, if a lease that is governed by California law contained a provision terminating it in the event of a change of control or merger, then that provision would be enforced. Thus, California law determines what rights ________ succeeds to in this state, not Florida law. Under California law, ________ cannot maintain and operate the facility office formerly maintained by ________ because that would constitute a transfer of that license from ________ to ________ , which is specifically prohibited by Financial Code section 3871.

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n2We note, however, that even the provisions of Florida law you cite in your letter appear to make a distinction between succeeding to the property rights, liabilities and fiduciary obligations of the disappearing trust company, and succeeding to the charter or license that was issued to that trust company. See, e.g., Fla. Stat. section 655.417(1) (“Even though the charter of a participating … financial entity has been terminated … all property of the participating … financial entity … are immediately vested in … the resulting financial entity, by act of law ….”) (emphasis added).

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If ________ intends to establish or maintain a facility office in this state, it must file an application with the Department pursuant to Article 4. Financial Code section 3862. Please also surrender ________ ‘s facility office license to the Department at your earliest convenience.

If you have any questions regarding this matter, please contact me.

Very truly yours,

DONALD R. MEYER
Commissioner of Financial Institutions
By

ROBERT R. VENCHIARUTTI
Staff Counsel
RRV:acp
cc: James Brodie